- HKIFA admin
Israel and Hong Kong Team Up to Test Digital Currency Cyber Risk
· Bank of Israel, Hong Kong Monetary Authority to work on trial
· Currency to be distributed by an intermediary, tested for risk
The Bank of Israel is working with the Hong Kong Monetary Authority on a trial which will test a new digital currency, including against cyber security risks, the Bank of Israel said.
The joint project, which will start in the third quarter, will use a two-tier central bank digital currency (CBDC), it said in a statement. It will be issued by the central bank and then distributed by financial intermediaries like banks.
In fits and starts, Israel is coming around to explore the idea of a CBDC after shelving its initial effort in 2018, when a team set up by the central bank recommended against issuing a digital version of the shekel.
Analysts at Bank of America Corp. have argued that central banks will inevitably launch their own digital coins to ward off the risk of losing monetary control to decentralized cryptocurrencies or widely adopted digital currencies like a digital dollar.
The retail CBDC being tested by Israel and Hong Kong is designed to allow the intermediaries to handle it with no financial exposure to their customers, and will assess whether this makes it less vulnerable to cyber attacks.
The “exposure-free” CBDC is assumed to carry “less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access,” the Bank of Israel said.
The Bank for International Settlements’ Innovation Unit will also take part in the trial.
Although research into digital currencies is still in its infancy, around 100 countries have either rolled out CBDCs or are considering them, according to the International Monetary Fund. Among them is China, whose digital yuan has already been tested by around 140 million people, including fans at the recent Winter Olympics in Beijing.